5. The income approach
The following table shows macroeconomic data for a hypothetical country. All figures are in billions of dollars.
Billions of Dollars
Gross private investment (investment)
120
Capital consumption allowance (depreciation)
35
Exports
60
Imports
55
Government purchases
130
Personal consumption expenditures (consumption)
325
Indirect business taxes
20
Social insurance taxes
33
Corporate profit taxes
13
Undistributed corporate profits
4
Transfer payments
70
Personal taxes
90
Compensation of employees
380
Corporate profits
120
Rental income (of persons)
25
Net interest
40
Proprietors' income
5
Income earned from the rest of the world
90
Income earned by the rest of the world
45
National income can also be calculated based on disposable income. Use the following table to derive personal income and national income (in billions of dollars). Specify what needs to be added to disposable income to arrive at personal income, and explain how personal income should be adjusted to find national income.
Billions of Dollars
Disposable income
500
Plus
+
Personal income
=
Plus social insurance taxes
+ 33
Plus
+
Plus undistributed corporate profits
+ 4
Minus
-
National income
=
National income is the total amount earned by the citizens of a country, while gross domestic product is the total value of goods and services produced within a country. To determine the gross domestic product, you have to make some adjustments to national income. Use the following table to derive gross domestic product and, as part of the process, net domestic product (NDP) (in billions of dollars). Again, specify what should be added to and subtracted from national income to arrive at the net domestic product, and what should be added to the net domestic product to arrive at the gross domestic product.
Billions of Dollars
National income
Plus indirect business taxes
+ 20
Plus
+
Minus
-
Net domestic product (NDP)
=
Plus
+
Gross domestic product (GDP)
=
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5. The income approach The following table shows macroeconomic data for a hypothetical country. All figures are in billions of dollars.
National income can also be calculated based on disposable income. Use the following table to derive personal income and national income (in billions of dollars). Specify what needs to be added to disposable income to arrive at personal income, and explain how personal income should be adjusted to find national income.
National income is the total amount earned by the citizens of a country, while gross domestic product is the total value of goods and services produced within a country. To determine the gross domestic product, you have to make some adjustments to national income. Use the following table to derive gross domestic product and, as part of the process, net domestic product (NDP) (in billions of dollars). Again, specify what should be added to and subtracted from national income to arrive at the net domestic product, and what should be added to the net domestic product to arrive at the gross domestic product.
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